Understanding Europe post-Covid, pre-Brexit

Ashley Balls surveys the post-Covid and pre-Brexit landscape in Europe and identifies an emerging world of opportunity for Kiwi exporters.

Whilst we (Spain and the EU) haven’t had anything like the good fortune with Covid-19 as New Zealand clearly has (congratulations!), things are very much on the mend.

Despite the local (Spanish) death count at 28,500 in early July, matters have very much settled down. The numbers in ICU are few and new daily infections range from zero to 100.

The EU Schengen countries (those using the Euro) have opened their borders and are back in business. Tourism, travel and hospitality have taken a beating and it may be 2023 before the sectors are restored to anything like last year’s levels.

Europe is open for business. In the UK it’s rather different.

Despite removing the lockdown in the UK while 100 or more deaths a day are occurring, and the ‘R’ rate is reputedly still over 1.0, the government has decided that it’s time to get back to work.

The new school year starts in early September it is already threatening parents who don’t send their children back with fines – hardly an encouraging start to the New Year if you live in a multi-generational household or have vulnerable family members at home.

Of more importance to New Zealand small and medium enterprise sector is that Covid and Brexit are inextricably linked.

Those businesses who trade with the EU are now going to have to work with two sets of rules – one for UK and another for the EU. The UK has stated that it will not impose EU conditions for employment, state support, health and safety and taxes on UK commerce – despite having done so for the past 47 years. The UK will, if you believe the government, trade on different terms – though it hasn’t said how!

One thing all Kiwi businesses should be aware of is that the EU will welcome you, and that regardless of which country you may wish to trade with, the rules are the same.

Trading with the EU from New Zealand has always very straightforward and will continue to be so. If you have any doubts go to the EU Commission’s website: https://europa.eu/european-union/about-eu/institutions-bodies/european-commission_en (The last two letters indicate the language – English – one of the primary languages of the EU.)

All the information you require can be found from this starting point and is always available in English.

One potential glitch to be aware of is that trade with Northern Ireland is different from the UK. Thanks to the permanent removal of the frontier between the Irish Republic and Northern Ireland, as required by the Good Friday Agreement[1], signed when the ‘The Troubles’ were over, Northern Ireland is effectively still part of the EU and there is a frontier between it and the UK. Therefore, if you export to the UK it is no longer a springboard into Northern Ireland – and the same works in reverse.

The impact of Brexit

Brexit will lead to higher prices in the UK as a direct reflection of duties and increased regulatory costs. For example, the UK Border Force is going to require an additional 50,000 personnel to police the borders with the EU and collect duties on goods going in an out.

Trade across the English Channel is no longer going to be straightforward and any New Zealand company trading with both the EU and UK will have to become familiar with new regulations. NZ/EU will continue as before but NZ/UK will not. It’s now two distinct markets and the UK is not going to be ready when the ‘transition period’ ends on 31^st December this year.

Here’s one minor example, the UK is no longer a member of the EU Medicines Agency and will have to set up a replacement. This is just one of more than 80 EU regulatory bodies that will no longer apply to the UK.

The likelihood of the new UK agencies being set up and ready for the January 1^st 2021 deadline is zero. Many new agencies will be set up and they will no doubt copy the EU regulations but they won’t be ready in time. That’s because Covid-19 effectively froze recruitment for three months. What does this mean for New Zealand exporters looking to access the UK? Principally delay, which, in the case of perishable goods whether for import or export, is going to be a problem.

Whatever you may have been told about Brexit in New Zealand is likely to be little more than opinion and quite possibly wrong, or at least inaccurate. Whichever way Brexit is looked at, it is probably the largest act of self-harm any country has ever inflicted on itself. Only today Philip Hammond, former Chancellor of the Exchequer (Finance Minister) from 2016 to 2019 announced it will cost at least £90 billion. That’s a huge cost to impose just as the reckoning-up for Covid-19 hits the books.

To put this in perspective public debt in the UK is already 100.9 percent of GDP, up from 69 percent ten years ago – and that’s before Covid costs.

By contrast New Zealand’s public debt is around 20 percent.

It should be noted that the New Zealand government is currently negotiating a trade deal with the EU, and whilst it will leave out many industries it will result in an increase of goods and services that can be traded freely between New Zealand and the EU. As to where these talks are at, keep in touch with MFAT, https://www.mfat.govt.nz/

One thing you can be sure of – there will be no ISDS (Investor-State Dispute Settlement) clauses in whatever trade deal is negotiated – the EU don’t do them. They have mediation clauses which, in the event of a stalemate, get sent to the European Court of Justice (ECJ) a court of the highest repute.

Opportunity knocks

If there is one message New Zealand’s SME export sector can take from all this – it is that the EU presents a whole new world of opportunity for business and it has a common set of regulations, whether trading with Malta, Poland, Germany, France or Spain.

It is a huge market with 446 million customers and an average income per capita of more than US$37,400 – that’s higher than New Zealand’s.

It is the world’s largest trade market. You can’t afford not to consider it.

Ashley Balls is senior partner of Legalbestpractice and resides in Salamanca, Spain. Email [email protected]